Archive for December, 2007

The recent Chapter 11 bankruptcy filing of MaxJet re-ignites discussions over the value proposition of business class travel in general and of business-class-only airlines in particular.

Any discussion over value proposition of business class has to be set in the backdrop of its cost. A quick check on a travel website (e.g. Expedia) would show that a business class ticket typically costs around 5x of an economy / coach class one in the case of a multiclass airlines like British Airways, Lufthansa, Singapore Airlines or Jet Airways. In case of business-class-only airlines like EOS and Silverjet, the multiple is a more modest 3-3.5x. See table below for details.

Sl. No.

Sector

Departing

Returning

Economy Class (GBP)

Business Class (GBP)

Business : Economy Multiple

Source

1

LHR-JFK

4-Jan-2008

7-Jan-2008

653

2323

3.5:1

expedia.co.uk

2

LHR-JFK

4-Jan-2008

7-Jan-2008

NA

1621

2.5:1

eosairlines.com

3

LHR-JFK

1-Feb-2008

3-Feb-2008

285

1472

5.1:1

expedia.co.uk

4

LHR-JFK

1-Feb-2008

3-Feb-2008

NA

1386

4.8:1

eosairlines.com

5

LHR-BOM

1-Feb-2008

3-Feb-2008

461

1639

3.6:1

expedia.co.uk

6

JFK-LTN

1-Feb-2008

3-Feb-2008

NA

1100

3.9:1

silverjet.com

7

LTN-DXB

1-Feb-2008

3-Feb-2008

309

1108

3.6:1

expedia.co.uk

8

LHR-SIN

1-Feb-2008

3-Feb-2008

664

3241

4.9:1

expedia.co.uk

Traditionally, airlines have sought to provide better value to their business class travelers by giving them a superior in-flight experience by way of personal video, 180° flat bed, more attentive service by employing a higher steward-to-passenger ratio in the business class cabin, and so on.

Following 9/11 and the heightened security measures that came in its wake, passengers faced long queues on the ground for check-in and security checks. This made the pre-boarding process quite painful. Airlines seized this opportunity to boost business class value by alleviating much of the pain through dedicated check-ins (e.g. Silverjet’s 30-minute check-in), separate security checking queues (e.g. FastTrack at London Heathrow) and luxurious lounges for business class travelers. As a few airlines (e.g. Emirates,Jet Airways and Singapore Airlines) started offering personal video even in economy class, airlines had to offer even more value to justify their business class ticket prices. Many of them are doing that by offering better post-flight conveniences like separate immigration queues and dedicated baggage handling for business class passengers at their destinations.

Speed and convenience seem to be the common themes for delivering better value for business class travelers.

Of course, some things can never be different – it takes the same 8-9 hours to fly from London to Mumbai (Bombay) regardless of whether you fly economy or business class!

Given that reality, most business class travelers would find enough value-add if only airlines can cook up some anti-jetlag potion exclusively for their business class passengers!!

There’s so much news reported these days about investments being made in western companies, especially financial institutions, by sovereign funds from China, Singapore and the Middle East. Recent examples include stakes in Citigroup by Abu Dhabi Investment Authority, Morgan Stanley by China Investment Corporation and Barclays by China Development Bank and Temasek of Singapore.

It’s easy to shrug these off as mere strategic or tactical investments in a globalized world except for the fact that these funds are owned by their respective governments.

Alarm bells are ringing in the USA and UK: For one, these sovereign funds lack transparency. For another, after keeping out their own governments from the “business of business” and achieving laissez faire (or free trade) status, there’s the worry whether their leading corporations will eventually come under the influence of foreign funds and indirectly foreign governments. It doesn’t help the situation to realize that these corporations are selling sizeable stakes at fire sale prices, given the battering their stocks have taken in the latter half of this year owing to the current credit crunch. Admittedly, these funds have expressed no interest in actually running these corporations and have not received any seats on their boards – at least not so far.

But, if the present trend continues, it would be interesting to keep a close watch on the course that laissez faire will take in these countries.